Fed chairman Jerome Powell. — Bloomberg
NEW YORK: Central bankers gathering this week for one of the world’s most prominent annual economic forums are set to find themselves more divided than perhaps any time since before the pandemic.
For years, assessments at the US Federal Reserve (Fed), European Central Bank (ECB) and a swath of their developed-world peers were much the same. When the initial 2020 Covid shock struck, they slashed interest rates and pumped in liquidity.
And when it became clear that a subsequent bout of inflation wasn’t going away on its own, they implemented the most aggressive tightening campaigns in decades to counter it.
Even little more than a year ago, monetary chiefs were on the same page at the ECB’s annual confab (informal private discussion) in Sintra, Portugal – in seeing more work to be done to quell inflation.
“We’ve got common shocks” that “affect all of us,” Bank of England (BoE) governor Andrew Bailey said at the time.
Today, with inflation having come down but remaining above 2% targets, there’s more distance among the group as officials weigh the risk of price pressures remaining too high against the danger of tipping their economies into a downturn.
For investors, it makes for a more volatile backdrop.
While the ECB already cut its benchmark rate more than two months ago, the Fed has yet to pull the trigger. The BoE moved on Aug 1, but only by a knife-edged five-to-four vote on its policy-setting panel.
Australia’s central bank chief this month cited critics on both sides of the rates debate, with some advocating tightening and some calling for loosening.
“I wish I had their certainty,” Reserve Bank of Australia governor Michele Bullock said in her Aug 6 press conference after keeping borrowing costs unchanged.
The trouble is, while “we have a lot of data telling us what went on in the past”, economic models aren’t able to fully capture what happens to the economy, she said.
Fed chairman Jerome Powell, who’s set to speak on Friday at the Jackson Hole, Wyoming, symposium hosted by the Kansas City Fed, said last month that “forecasters have been continually surprised”. — Bloomberg
